Procedures for paying import VAT in dropshipping

Dropshipping, a popular e-commerce trend, is gaining increasing traction. To understand its principle, remember that the dropshipper sells products they do not hold in stock. Since January 1, 2021, dropshippers are subject to VAT just like any commercial activity. However, as intermediaries in the sale, dropshippers are not responsible for customs duties. Nonetheless, reforms have been made to ensure fair transactions. What is import VAT in dropshipping? How to pay import VAT in dropshipping? Here’s everything you need to know about paying import VAT in dropshipping.  

Import VAT: a simple definition 

When purchasing products from a country outside the EU, you must pay the VAT of the concerned country. If you are a VAT-registered entrepreneur, you can recover it later as deductible VAT. For products from a third country (outside the EU), import VAT will be applied and must be paid to customs services. 

In reality, import tax is not much different from VAT. VAT is required for goods or services sold within the EU, referred to as intra-community acquisitions. The VAT rules will depend on the taxing country, determined by the buyer’s status and the nature of the transaction. The same principle applies to dropshipping and VAT. For context, consider a product imported from Germany and delivered to France. The buyer in France will pay VAT according to French regulations, requiring a VAT number.
 

• Who Is liable for import VAT?

Import VAT is the responsibility of the buyer or final customer, whether an individual or a business. If the business handles the delivery, it must advance the tax and then recover it from the customer. In dropshipping, special attention is needed when goods come from a third country or outside the EU. In this case, the final customer is fully responsible for paying the import VAT to customs services.

Import VAT in dropshipping: key reforms to note 

Previously, products under 22 euros were exempt from import VAT. However, since June 30, 2021, all dropshipping products, even those from third countries under 150 euros, must be taxed to better regulate import VAT and prevent fraud.
 

As an import dropshipping merchant, you must charge VAT based on the delivery country. For example, it will be 20% in France, 19% in Germany, etc., depending on the customer’s location. To pay your taxes correctly in dropshipping, you should register with the IOSS (Import One Stop Shop). If you are not in an EU member country, you must use an intermediary such as specialized fiscal, customs, and accounting companies like Eurofiscalis. 

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Should dropshippers tax sales to customers?

Generally, a dropshipper does not pay customs duties, which are usually the responsibility of the final customer. This rule applies if the buyer is in an EU country and orders a product within the EU. Your dropshipping activity will be simpler if you source goods from an EU country and register your activity in the EU, avoiding unhappy customers. 

For paying import VAT in dropshipping, two scenarios can arise:

• Dropshipping business located in the EU:

If based in the EU, you must charge VAT on each sale. The rate varies depending on the amount of goods sold annually. You need to refer to the distance selling threshold to determine whether to apply the VAT rate of your country or that of the customer. 

• Dropshipping business located outside the EU:

In this case, to correctly handle import and collect VAT when exceeding the threshold, you must register for EU VAT.
 

As a dropshipping entrepreneur, you must be aware of the distance selling rules within the EU to avoid displeasing customers. It is also advisable to check each state’s fiscal policy to ensure full compliance. 

In any case, before starting a dropshipping business, you must clearly understand import duties in dropshipping. These duties include certain exceptions that are not always obvious and require careful analysis. 

Dropshipping and importation: VAT and customs duties 

Even though dropshipping is currently trending, understanding its true meaning and functioning can still be challenging. Additionally, the question of dropshipping and VAT remains particularly delicate. Before determining how to pay import VAT in dropshipping, it’s essential to revisit VAT and customs duties in e-commerce. 

Goods importation is subject to VAT. This tax is raised when the product passes through customs for any commercial activity applicable in mainland France and the DOM, except temporarily in Guyane and Mayotte. Import VAT is applied as soon as a product enters France, regardless of whether it comes from an EU member country. VAT also applies to the product's consumption. 

So, what are the import duties in dropshipping? You need to know everything about import duties in dropshipping before launching and choosing your dropshipping business status. Fiscal matters are indeed crucial. As with all legally taxable activities, VAT in dropshipping falls under consumption tax. 

Who pays VAT in dropshipping? 

The rapid expansion of dropshipping is undeniable, largely due to its accessibility. Generally, starting a dropshipping business requires only setting up an online store. Various e-commerce solutions make this process easier. The business model involves reselling products from major marketplaces like Amazon. However, understanding VAT on imports in dropshipping can be complex. How should VAT be correctly charged as a dropshipping product importer?
 

If you are an importer of dropshipping products, you should be aware of the new VAT regulations for dropshipping that came into effect in January 2021. These regulations provide clearer guidelines and help address various issues. 

Dropshipping is a fully legal activity as long as you adhere to the authorities' requirements. As a merchant, you must be registered with the commercial and company registry. With a website showcasing products for sale, you, as a dropshipper, are responsible for VAT on all imported goods. This means you need to cover certain taxes instead of the end customers. 

Procedures for paying VAT in dropshipping

Recent changes in VAT regulations for imports in dropshipping mean that your dropshipping store must pay VAT on imports, even for products costing less than 150 euros. This applies to products sold in Europe but sourced from a foreign supplier. The dropshipping product importer must pay the VAT, while customs duties will be the responsibility of the end customer for packages over 150 euros. 

How to Pay Import VAT in Dropshipping? Experts in import dropshipping benefit from an exemption through the One-Stop Shop (IOSS). To use this system, you need to obtain an IOSS identification number. 

• Paying VAT on imports in dropshipping based on status 

To determine how to declare import VAT in dropshipping, several factors come into play, particularly the business status you choose. This decision is made when setting up your business. Each status has its benefits, especially regarding VAT payment. If you choose the self-employed status, you will only pay VAT on goods exceeding the threshold set by the state. 

• Paying VAT on imports in dropshipping based on location 

Dropshippers are always required to pay VAT to the state. VAT on imports in dropshipping can vary based on the dropshipper's location (EU or non-EU). 

Who to Pay VAT on Imports in Dropshipping? Typically, import VAT for dropshipping should be paid to the tax authorities managing taxpayer accounts. It is also possible to use customs and tax authorization platforms such as SOPRANO-EORI. These platforms issue EORI numbers, which can be used for customs clearance, allowing for a fully digital tax payment process. 

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Conclusion 

To find products for dropshipping more efficiently and without multiple subscriptions, consider using Minea. By tracking advertisements on social media, Minea helps you locate some of the most popular products to enhance your dropshipping business. It also considers influencer product placements and features an effective filtering system.